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I HATE DISCOUNTS

The people that know me and have worked with me in any capacity of the past forty plus years know that I HATE DISCOUNTS.

I know you have to offer some special pricing every now and again. However, too many people just change the price on an item in a transaction and that leaves a bad impression in the mind of the customer. Oh I get it. The customer feels good about getting a reduced price. Until, that is, they think about it. Sooner or later they begin to understand that if you changed the price on that item one time, without requiring anything more from the customer – well your price must have been too high.

If you have to change a price you must change something else in the transaction in order to justify the reduction in the price. Increase the quantity. Place it on a stock order and have the customer wait for it – anything that makes sense.

Why do I HATE DISCOUNTS??

Well look at this example from a typical service department…

Sell Price              100         Discounted         90

Cost Price              35                                     35

Gross Profit            65                                     55

Expenses               40                                     40

Net Income            25                                     15

A 10% discount on the selling price becomes a 15% reduction in the gross profit and a 40% reduction in the operating profit. I HATE DISCOUNTS.

I know you have to make adjustments from time to time. It is important that everyone understand the implication of a small discount in selling price. It becomes huge at the operating net income line. The time is now.

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A Customer Service Tool

VoIP – voice over internet protocol. What a name. Well what it does is quite remarkable. This is where your computer drives your phone system. A call comes into your Company and the computer directs the call to the appropriate extension while at the same time it paints your computer screen with the pertinent information from your name and address on the customer. Not only that, it can delivery almost whatever information you want.

“Hello Dave, how are you? Wow, we haven’t spoken since last October, where have you been?”

“Hi Dave, congratulations on your anniversary, how many years has it been?”

“Dave I have been meaning to call you, congratulations on your recent purchase of our “xx” machine.”

I am sure you can imagine various pieces of information that you would like to have displayed before picking up the telephone. There is a machine in the shop, or there is backorder outstanding – pretty critical information that would help you in your discussion with the customer.This is similar to the “Vonage” service that runs through your cable. Contact your dealer business system provider or your telephone system provider and ask what is necessary for you to obtain this type of tool. It will give you a terrific tool for customer service. The time is now.

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Facts are awfully stubborn things

This is a most interesting time, isn’t it? I listened to Jimmy Rogers on CNBC the other night. He was pointing out there is an election this year in the United States, there is one in France. Germany has an election next year. In fact there are 40 governments that will face elections this year. There will be a lot of money spent by the politicians. Yes, they spend our money to get themselves reelected. Sorry to be so cynical.

But 2012 is going to be a good year – one way or another. If we have to show unemployment going down well let’s not look so closely at the shrinking size of the work force;  If the deficits get too large let’s blame it on the recession or the conflicting arguments between one view of the economist Keynes and the rigors of the Austrian school followed by the later Milton Friedman. Politicians will be in the feel good best this political season

The total unit sales in the United States are still less than 50% of what they were at their peak. The customer fleets and rental houses are almost at the complement of units now. So where is the boom going to be coming from in the US? It sure won’t be housing will it? And as long as housing operated with depressed prices the pent up work force movement will not be released.

The only answer is that the market is what the market is and get over it. Get one with it and make the best of it. The happiest people normally DON’T HAVE the best of everything but they do MAKE THE BEST of everything. The time is now.

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Tablets, PDA’s and Laptops

Over the years we have collected labor to apply to work orders in a myriad of manners. We started from an attendance time card which the mechanics completed at the end of the day telling us what times they worked on which jobs. Then we moved to individual job time cards while still retaining an attendance time card for payroll. Then some of the companies got racy and had only one time card which fed work in process but was data entered to the payroll system. Can you imagine? Then we had one card feed both systems – think of that some efficiencies arriving. Finally technology showed up and we had scanning devices either hand held or bar code scanners to record time. A long road travelled over forty years.

The objective is still the same isn’t it? We need to collect time against a job so that we can update standard job times, record time to create an invoice for the customer and provide an entry into the payroll for the technical so they can be paid.

So now we have laptops and tablets and PDA’s. And each of these devices can be used to collect labor information.

So why not take the leap and get labor entered by the technician and give them a device with which they can place their own parts orders? I have no idea why we can’t get this done. So contact your business system supplier and tell them you want the technician to be able to use a laptop or a tablet, an iPad, Galaxy or any Android device or a Thinkpad Tablet, like I use, any of which can be connected to the internet to have access to the electronic parts catalogues and service documentation. They can get that done for you. Then both you and the technicians will be much further ahead than with what you are using today. The time is now.

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A new discussion on market share

Al Wiley, an executive of Xpectmor, sent us a comment on our recent Market Share post. He says that “market share is the definitive measure of customer satisfaction.” Of course he is right. The measure of market share, however,  is what causes the dilemma for many of us.

In the equipment market it is reasonably easy to define market share. There are a finite number of transactions and everyone knows what everyone got. For instance, we have five different suppliers in the market with sales last month. Supplier #1 got 4 sales, supplier #2 got 1 sale, supplier #3got 2 sales, supplier #4 got 2 sales and supplier #5 got 1 sale. The market share is a simple matter of arithmetic. Supplier #1 got 40% market share and so on.

With the parts and service business it gets more complicated. The various suppliers into the market don’t know what the other suppliers sold during any particular period. So how can we possibly calculate the market share of any particular supplier? That is why there has not been any real definitive publication for market share.

When I first started in the Industry in the late 1960’s some suppliers used to conduct a personal survey with each and every one of their customers worldwide. Can you imagine the time and cost for such a survey? Well they did them and they published the results within their distribution network. It was not precisely accurate but it was a very good indicator of where you stood as a dealer in parts and service market share.

As more and more machines get GPS equipped and the dealers/distributors, manufacturers and customers become more adept at understanding telematics and their use we have a terrific opportunity. We can calculate what the consumption of parts and service “should” be on a machine.

This is the first problem. The customer doesn’t always follow the recommendations of the manufacturer of the machine for the maintenance intervals nor the maintenance items to be dealt with for a particular service. Similarly when it is obvious that a repair should be made with a “new component” sometimes a repair that I call “bubble gum and band aids” will be performed. You might be wondering why this is important. Well it is due to the fact that all we can do is calculate the “potential” consumption of parts and service for a particular machine in a specific application running a specific number of hours. It is this potential that we have to use to calculate our “market capture” rate. See now we change the word. It is no longer market share it is market capture.

The dealer captures the potential business based on their actual sales of parts and service. Once we have these facts nad have them for a sufficient period of time we can make a clear statement about capture rates are the success and/or failure of the particular strategy that a dealer is following. The time is now.
 

 

 

 

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Market Share

If you had to choose between customer satisfaction and profitability, what would be your choice? I would take customer satisfaction as without satisfied customers the ability to make profit is going to have a short life.

 

How to measure customer satisfaction becomes the challenge. Some people define it as repeat business; others measure the change in sales from one period to another; still others use surveys. What is your choice? How satisfied are your customers? One of my favorite indicators of customer satisfaction is the market capture rate. How much of the parts and service business that is available do you in fact receive on the machines that you sell and service? What is your parts market capture rate? What is your service market capture rate? I will put parts at around 35% – 40% and service in the range of 15% – 25%, which by nearly any measure is not very good. The interesting thing about the parts and service business is that management has been held harmless as there is no precise authoritative measurement by which this is reported. It is an opinion. That means that we don’t have a high standard of market capture rate against which we are measuring the performance of the parts and service departments. That is about to change. With the advent of machine telematics some years ago we can now track the hours of each machine and start to evaluate parts and service consumption rates across machine models and applications. This will be a great advance as we will finally know on which machines we are losing the product support business and on which type of products and services. This will be a tremendous change and opportunity for everyone in the parts and service business. I look forward to his type of challenge, shouldn’t you? The time is now.

 

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Service Technicians

The complaints are still out there- “I can’t find any experienced equipment technicians.” Isn’t it obvious by now that anyone worth anything that has experience is going to be working already? If there is a technician available and they apply for work I am sure that you will give them a very thorough interview and background check.

We need to develop our own technicians. As obvious as that seems to be we continue to be in denial.

Hire willing young men and women (yes women) who have a mechanical aptitude and get them into a development program. Start as we did in the old days with one “help/trainee” for every two technicians. Set up a training program. Work with local technical schools and unions and customers who offer technical training. Establish a “career path” training program. It will take roughly three years to create a market ready technician.

There are wonderful programs at Oklahoma State University in Okmulgee for one which works with dealers and manufacturers to offer specific brand training programs. Caterpillar, John Deere, Toyota and Ditch Witch to name a few work with schools around the country on these programs. Check out your local area to find the schools that you can partner with in this area.

Caring about your employees, providing training and a safety aware work place will go a long way to retaining your employees. Some dealers, and extremely success dealers, have never had a layoff of technical employees. Imagine what that says to the employee.

The time to complain has long since passed – don’t you think we should start developing our own? The time is now…..

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Can we make a difference

The transition to team management while still encouraging curiosity is struggling as management doesn’t know how to encourage risk taking without contradicting the work of the team.

The story of the ages is that people will take risks when they have less to lose and be risk averse when they have a lot to lose. How to break through this paradigm will be a challenge.

To lower parts inventories while improving customer availability.

To guarantee completion dates on repairs while embracing employee satisfaction.

To retain customers while payment patterns change.

All of these challenges exist because we have been rather timid over the past years to tackle changes necessary in a meaningful manner. Now is the time.

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Here we are…

Welcome to our blog. We will be involved in discussions and debates on all subjects relating to the operational aspects of equipment dealers and distributors in the Capital Goods Industries. Parts, Service, Product Support Selling, Marketing and Customer Service will be our focus here. But we don’t want to limit your repsonses or thinking to those topics alone. We hope you enjoy and will learn without having to incur the scars on various parts of your body or mind.

Keep involved and participate as we communicate with you on a weekly basis. Thanks for your interest.

The time is now…